Accountants Play a Vital Role - Assignment Example

?Running Head: Accounting Accounting Q1. A Accounting is a process which involves identifying, measuring, recording and communicating economic information to users of the information to be able to make judgments and decisions (Warren et al, 2008). Accountants play a vital role as they are the ones to perform these functions. The accounting professionals also use to the latter all the accounting process in performing those functions. They identify accounting information by using a set of accounts based on a system referred to as the double entry bookkeeping. The double entry system identifies and records all the accounting transactions. Measurement of accounting information involves making subjective judgment about the value of assets or liabilities relating to a business. It also involves measurement of profits or losses made in an accounting period. Accountants also record accounting data which is presented as economic information to users. It is referred to as economic information since it relates to the economic or financial activities of a business. The main financial statements that accountants prepare are the income statement, balance sheet and the cash flow statements (Warren et al, 2008). The balance sheet indicates the resources owned and owed by a business at a particular point in time. It also shows the investments made by the business and the sources of these investments. The income statement shows the profitability of a business while cash flow statement reflects the cash movement in and out of business. The preparation of all financial statements require the accounting professionals to apply all the set accounting processes to the latter in order to ensure relevance, reliability and understandability of the financial statements by the users. This is an indication that too much value of the accounting process is exercised by professionals in the identification, measuring, recording and communication of economic events. Q1. B Generally Accepted Accounting Principles (GAAPs) are the accounting rules developed in accounting practice in order to meet the needs of the society of recording and reporting financial statements. This explains the reasons as to why accounting regulation has become a big issue for the society and business today. For example, Australia has adopted International Accounting Standards (IAS) to oversee accounting regulation in the country. The Financial Reporting Council (FRC) in the same country also identifies those priority issues in need of regulation. The following are the reason as to why regulation of the Preparation and presentation of accounting information is necessary in an organization. a) Accountability Accountability is one reason behind accounting regulation. It is based on the fact that the citizens and the stakeholders have the right to know. Financial information presented by accountants enables a business to be accountable. This is because the actions and activities of the business are produced in the reports. Information may be communicated through management reports, annual reports and accounts (Birt and Boland, 2010). Users need the information to make decisions. They get information on the financial position of the business and on its performance. Users of financial information include governments, lenders, employees, shareholders and society at large. b) Transparency and Disclosure Transparency and disclosure of financial statements helps in preventing and detecting errors and fraud (Lee, 2007). Therefore, through preparation and preparation of financial statement errors and frauds can be detected. An auditor through tests can detect any errors or fraud and reflect them in the audit reports. Disclosure in financial statements must include the financial position like the balance sheet, performance like income statement and compliance like the notes to accounts. Investors can only provide funds for any investment in a company if they quite confident of ‘true’ and ‘fair’ presentation of financial statements. Transparency and disclosure are therefore quite important as the economy of any country heavily depends on these business investors for growth and prosperity. The decisions taken by the financial statement users usually require an evaluation of the entity’s ability to implement a sustainable service delivery and this can only be achieved if the financial statements prepared with full disclosure and transparency. c) Integrity Complete, sound, honest and sincere accounting information is the integrity of financial information (Birt and Boland, 2010). It is the responsibility of the directors to prepare and present financial information. Therefore, if the directors are intelligent then the financial information is also complete, sound and honest. The increase in business complexity and the separation of ownership from control are key drivers of regulation in accounting. The separation of ownership from control brings leads to agency problems and hence the need for high integrity levels in the preparation and presentation of financial statements. d) To ensure orderly and efficient conduct of the business All businesses or companies should conduct themselves in a way which is in accordance to the set accounting regulations when preparing and presenting their financial statements. When a business is run in an orderly and efficient manner it displays several qualities. To begin with, there should free flow of information, documents, goods and services within the organization itself, among various departments and its dealings with external parties. Secondly, there should be co-operation among the various departments and officials within and outside the entity. The third quality is that the system should produce timely and reliable information for decision making purposes (Birt and Boland 2010). Also, the organization should meet the needs of its shareholders, customers, suppliers, employees and even the regulatory authorities. Finally, the efficiency in the organization ensures that resources are optimally utilized so as to minimize waste. Accounting regulation should be followed to the latter in preparation of financial statements to enhance reliability and relevance of the information. e) Relevance Accounting regulation is set to enhance the relevance of the accounting information. For any accounting information to be useful, it must be relevant for decision making by the users. Information is termed to be quality if it influences the user’s economic decisions by helping them in the evaluation of the past, present and the future events. Accounting regulation requires financial statements to be up to date to enhance relevance to the financial users. Churchill Reality - Worksheet Template   Unadjusted T/B Adjustments Adjusted T/B Income Statement Statement of Financial Position Account DR CR DR CR DR CR DR CR DR CR                       Cash at bank 9,418       14,858       14,858   Accounts receivable 26,860     6,957 19,903       19,903   Promotional materials supplies 1,464     598 866       866   Prepaid rent 4,163     1,041 3,122       3,122   Prepaid insurance 2,279     760 1,519       1,519   Motor vehicle 30,590     2,194 28,396       28,396   Furniture 21,644       21,644       21,644   Accounts payable   6,806 1,181     5,625       5,625 Bank loan (Due 2014)   22,440   168   22,272       22,272 Capital   60,617       60,617       60,617 Drawings 939       939       939   Rental commission revenue   6,316       6,316   6,316     Auction commission revenue   5,549       5,549   5,549     Advertising fees revenue   4,030       4,030   4,030     Staff wages expense 5,580       5,580   5,580       Motor vehicle expense 394       394   394       Sundry expense 291       291   291       Advertising expense 2,136       2,136   2,136       motor vehicle scrap value 2,194   2,194   2,194   2,194       Insurance expense     760   760   760       Rent expense     1,041   1,041   1,041       Interest on loan     168   168   168       Return outwards     598   598   598       Profit                   2,734                                                                                         Subtotal                     Net profit/loss             2,734       Total 107,952 105,758 5,942 11,718 104,409 104,409 13,161 15,895 91,247 91,247 References Warren S.C, Reeve J.M, Duchac J.E., (2008). Accounting. Cengage learning Birt and Boland. G., (2010). Accounting: Business Reporting for Decision Making. Wiley and sons publishers. Lee T, (2007). Financial reporting and corporate governance. Wiley publishers. Read More